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Hungarian report Hungarian report
by Euro Reporter
2011-12-01 07:18:10
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Hungary may have to bow to IMF conditions to access financial assistance

Hungary’s government may have to reverse its position on ruling out International Monetary Fund conditions in exchange for financial aid, according to Barclays Plc, Goldman Sachs Group Inc. and Capital Economics Ltd. Prime Minister Viktor Orban last week abandoned his policy of shunning the Washington-based lender, seeking help after a Standard & Poor’s threat to downgrade Hungary’s debt to junk sent the forint to a record low. He may have to do another reversal and scrap emergency taxes on some industries and ease the burden of a mortgage-repayment plan on banks, said Neil Shearing, an emerging-markets analyst at Capital Economics.

The government has scrapped two debt sales and reduced the size of another eight auctions in the last three months as the euro region’s debt crisis deepened. The threat of market turmoil may force Orban to back down from insisting on an IMF agreement that won’t infringe on the country’s “economic sovereignty,” Barclays Capital economist Christian Keller said. “This seems to create a conflict between what Hungary wants and what is realistically available,” Keller, Barclays’s London-based head of research for emerging Europe, the Middle East and Africa, said yesterday by phone. “They are having serious financing challenges.”

The forint has lost 14 percent against the euro since June 30, the second-worst performance globally. It dropped today on concern investors will shun assets of countries most at risk of contagion from the euro crisis after Germany failed to sell all the bonds it offered at an auction today. The currency fell 1.9 percent to 310.61 per euro as of 4:01 p.m. in Budapest, eroding its gain since the government approached the IMF to 1 percent. “Until the government wakes up and surrenders some sovereignty to the fund or outside anchors, the forint is not going to turn around,” Tim Ash, head of emerging-market research at Royal Bank of Scotland Group Plc, wrote in an e-mail today. The markets “are worried over the lack of a policy anchor.”


Hungary wants state concession on selling cigarettes

The Hungarian government wants to introduce a state concession on the sale of tobacco products in an effort to keep minors from buying them and also to support small local businesses. “We are aware of minors regularly being able to buy cigarettes, which are something that usually happens at multinational stores,” Janos Lazar, the parliamentary group leader for the governing Fidesz party, told reporters Monday. Selling tobacco products and alcoholic beverages to buyers under 18 years old is illegal in Hungary. However, it can be hard to verify customers’ ages, especially at larger outlets with high foot traffic, so many don’t bother.

“We are looking to adopt the Austrian model, which involves the designation of a set number of registered kiosks run by small local businesses,” Mr. Lazar said. As he explained, Hungarian smokers are estimated to spend up to 500 billion forints ($2.2 billion) a year on smokes, a market the government wants to be controlled by small family businesses. “We want to create tens of thousands of jobs this way and do something that will also be good for local communities,” Mr. Lazar said.

He added that the transparency of cigarette sales would help address the related public health problems, especially in the less-affluent, eastern parts of the country. “The farther east you go, the worse conditions of living you find, the more propel you’ll see smoking,” he said. The government is not concerned that the move will be too painful for big retailers. “Tesco and the like will still be highly profitable,” Mr. Lazar said. He noted that he is currently in consultation with various departments and ministries on how the Austrian system can be adopted to suit Hungarian specifics.


Central bank hikes key rate by half point

Hungary's central bank on Tuesday raised its base rate by half of a percentage point to 6.5%. The move comes as Hungary attempts to fend off a crisis after Moody's Investors Service last week downgraded the government's bond rating to Ba1 and Budapest began talks with the International Monetary Fund. The euro fetched 308.57 forint, little changed from Monday. The forint has fallen by around 11% versus the euro in the year to date.

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